An audit is a fairly intensive process that includes conducting tests and gathering independent verification and evidence supporting the amounts and disclosures in the financial statements. An audit provides a reasonable (but not absolute) assurance that the organization’s financial statements are free of material misstatement. Crosby & Kaneda provides audit services to nonprofit organizations with operating budgets ranging from $300,000 to $10 million (and beyond).
We supplement our audit reports with recommendations to strengthen the design or operation of the internal control structure of the organization and financial management practices. These recommendations are detailed in an internal control management letter issued to the Board of Directors.
When properly and consistently used, internal controls may reduce the risk that assets are misused, while promoting timely detection of errors in your financial statements.
When to get an audit?
For many organizations with revenue > $2M an audit may be required under California law.
For organizations with revenue > $1M an audit is a common requirement of funders or is considered “best practice” by boards as part of their financial oversight of the Organization.
For organization with revenue > $500K practice ranges from annual audits to periodic audits (once every 2 or 3 years) with reviews in the intervening periods or simply reviews only.
For organizations with revenue < $500K an audit is often a matter of judgement and audits are less commonly seen. Common reasons for an audit at this size is to be audit ready for expected growth, to provide a learning opportunity for staff or to comply with a regulation or funder requirement.
One item of note: If “your latest audited financial statements” is an item on the list of requests from a government or foundation, that may not mean you absolutely have to have an audit especially if your organization has less than $500,000 in revenue. Some funders will agree to accept a 990 tax form prepared and signed by a CPA, or a financial review. It doesn’t hurt to ask. If a potential funder insists on an audit — especially if they indicate that you have a good chance at receiving funding that will more than cover the audit fee – many organization’s carry out an audit. .
GAAS v. GAGAS
GAAS (Generally Accepted Auditing Standards) are (relatively) simple. GAAS allows auditors to issue an unqualified (usually called clean) opinion even if your internal controls are weak to nonexistent. Don’t confuse this with GAAP (Generally Accepted Accounting Practice).
GAGAS (Generally Accepted Government Auditing Standards) are the rules that govern audits mandated by the government. A limited number of Government entities may require that organizations they fund are audited under GAGAS. When performing a GAGAS audit, weak internal controls will be disclosed in the “Report on Compliance and on the Internal Control over Financial Reporting” included in your financial statements.
A-133 / 2 CFR 200 Single Audits (Federal Expenditures)
Circular A-133 and commonly referred to as the “a Single Audit Act” sets forth audit requirements for organizations that expend $750,000 or more of federal funds in any one year.
Because of the smaller number of organizations required to complete such audits as a result of increases in the single audit threshold we do not currently engage in single audits.